Advantages And Disadvantages Of Conventional Banking
INTRODUCTION
Money is generally defined as a thing that is commonly accepted as a medium of exchange.
It is a legal tender which means it is authorized by the government of a country for all its legal transactions. The functions of money are:
Medium of exchange: In the absence of money, goods were exchanged for goods-barter system. This required double coincidence of wants; hence exchange was difficult and limited. Sale had to happen on spot. But with introduction of money, acts of sale and purchase are separate and double coincidence of wants is no longer needed. Exchange is now easy and unlimited.
Store of value: It implies store of wealth. Storing of wealth has become easy with the introduction of money and it is a source for future
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Working capital or capital financing Capital financing is done via equity financing method and working capital funds are given by Bai salaam wherein funds will be provided now and the products have to be delivered later after a specified date, and the bank will sell them and recover their amount. Conventional banks lend capital financing based on collateral and guarantee of the borrower and interest. Working capital is provided on interest rates based on per month basis.
11. Limitations Islamic banks are strict at not lending for purposes of illegal activities such as gambling, import/export of alcohol, products which contain pork, etc. Conventional banks do not indulge in the affairs of the borrowers. Hence it is permissible for the borrower to borrow the amount and use it for any illegal means.
12. Financial products Islamic banks offer halal financial products such as murabaha, mudaraba, leasing, musharaka, takaful, export/ import, etc. so that the muslim borrowers need not have to follow the interest charging system. Conventional banks offer financial products such as car loan, house loan, education loan, leasing, export/import,
13. Foreign exchange currency lending If financial transaction takes the form of loan/debt the payment shall be in the same amount irrespective of the change in price of the commodity
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